GM collapse could spell disaster for Ford, Toyota, Honda

General Motors is facing the most serious financial crisis of its 100 year existence, with bankruptcy looking like a very real risk. Although there is talk of a bailout package in Washington, nothing has come to fruition yet, leaving GM on life support with only enough cash on hand to survive until mid-2009. There is no question that a Chapter 11 filing would be detrimental to GM and its employees, but the failure of the nation's largest automaker would spell disaster for the U.S. economy.

According to Automotive News, the failure of GM - or any other member of the Big Three - would send a domino effect through the industry, bringing down dealers, suppliers and even foreign automakers.

Because automakers and suppliers are so intertwined, the failure of one car maker has the potential to bring down several suppliers. In turn, those bankrupt suppliers would interrupt Ford and Chrysler's supply lines, which would likely be enough to topple the already crippled automakers.

The suppliers that would be left after the fall out would struggle to supply the foreign automakers that have factories in North America, meaning companies like Honda and Toyota could face some very dire straits.

"If GM goes down, it will take down companies like Lear and Johnson Controls," Wolkonowicz says. "That will shut Ford down, and it would shut down production at Toyota and Honda," John Wolkonowicz, an analyst for Global Insight, told Automotive News. "They would go down like dominoes."

Outside of the auto industry, the collapse of one or two of the Detroit automakers would have a tremendous impact on the U.S. economy as a whole. According to a new study by the Center for Automotive Research, the failure of one or two of the domestic automakers would results in the loss of 240,000 automaker jobs, 795,000 supplier jobs and 1.4 million related jobs.

President-elect Barack Obama has pledged to make the ailing auto industry his top priority, but it remains to be seen if the government can move fast enough to save the industry and the economy.